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Your mortgage is probably the biggest debt you’ll ever have. Paying it off can bring you closer to financial freedom and we’ve got the tips to help you get there faster.
Wouldn’t it be great to live mortgage-free heading into retirement or even before you finish work? With interest rates at an all time low, shaving years off your mortgage could be more affordable than you think.
Aside from the obvious benefit – saving money on interest – getting ahead on your mortgage can give you some breathing space if life throws you a curveball or if interest rates go up (which they will at some point). And if you like the idea of retiring earlier, focusing on paying down your mortgage could help you make it happen.
By taking one (or more) of these five steps you can make a big difference to bringing down the balance you owe on your mortgage.
Interest-only mortgages can be useful. They can help first home buyers get on the ladder, and switching to interest-only payments for a time can help home owners deal with a short-term drop in their household income, for example. But going interest-only could do more harm than good in the long run, depending on your situation of course.
Interest-only mortgages should be carefully considered. When repayments only cover the interest component of your loan and nothing from the amount you’ve actually borrowed, your loan amount stays the same – which means it could be hanging around for much longer if you don’t catch up later on. Paying off the amount you’ve borrowed as well as interest could see you paying off your mortgage quicker – potentially saving you thousands of dollars in interest too.
For the most part, paying off your mortgage quicker makes sound financial sense. But there are times where it may be wise to put extra money towards a different goal:
Paying off ‘bad’ debt first – some debts, such as a personal loan or credit cards, have a higher interest rate than others – in other words, they are more expensive to keep. And while your mortgage is providing you with a home and helping you build wealth in the long term, debts from credit cards and shorter term loans often only harm our finances.
Find out more about good vs bad debt
Contributing to super – making sure you have enough money to live on in retirement is right up as one of the most important things you can do for your future self. Making extra super payments could make a big difference to your retirement savings – and save you on tax.
Find out more about growing your super here.
Some banks will offer an offset account facility which can help you save a little every day on the interest on your home loan.
Every mortgage provider is legally obliged to publish a comparison rate to help you compare the total cost of different home loan options.
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